Finally there is a robust measure of whether or not corporations that focus on the long term achieve better results. According to the McKinsey Global Institute, the answer is a resounding yes.
McKinsey has released a discussion paper, Measuring the Economic Impact of Short-termism, which analyses whether short-termism genuinely detracts from corporate performance and economic growth.
Using a data set covering 615 large- and mid-cap publicly listed US companies from 2001 to 2015, McKinsey has created a five-factor corporate horizon index.
The data looks at patterns of investment, growth, earnings quality and earnings management. It separates companies with a long-term focus from others and compares their performance.
Among the findings:
- From 2001-14, the revenue of long-term firms cumulatively grew 47 per cent more, on average, than the revenue of other firms, with less volatility.
- Long-term firms invested more than other firms from 2001 to 2014.
- Long-term companies exhibited stronger financial performance over time
- From 2001-15, long-term firms added nearly 12,000 more jobs, on average, than other firms.
The research shows that firms with a long-term focus exhibit stronger fundamentals, deliver stronger superior financial performance, continue to invest in difficult times and add more to economic output and growth.
